Yahoo may reject latest MS bid

Yahoo is responding to a three-week deadline issued by Microsoft Chief Executive Steve Ballmer in a letter to Yahoo on Saturday for Yahoo to agree to Microsoft’s $31 a share cash-and-stock offer or risk seeing the bid lowered.

“This is a hardball tactic to turn up the heat on Yahoo’s management to start negotiating immediately,” Jeffries and Co analyst Youssef Squali said. He still predicts the Microsoft deal will be done at $31.

Directors of Sunnyvale, California-based Yahoo rebuffed Microsoft’s original offer in February, saying it undervalues Yahoo and that it is seeking alternatives.

Meanwhile, talks on a potential alliance between Yahoo and Time Warner Inc’s AOL have intensified, according to the person, who was not authorized to speak about the matter on the record. An AOL representative was not immediately available for comment.

A Yahoo spokeswoman declined to comment.

Yahoo has also held talks with News Corp, but these talks have cooled, the source said.

Yahoo shareholders and analysts say Yahoo’s options fall into two major categories; find an ally to help demonstrate Yahoo is worth more as an independent player or surprise the market with a strong show in its quarterly results.

The consensus on Wall Street is that no “white knight” will emerge to whisk Yahoo away from Microsoft and its proposed cash-and-stock offer currently valued at $42.2 billion (21.2 billion pounds).

Yahoo’s management pitched the potential of alliances with Google Inc and AOL to shareholders as recently as last week as part of a roadshow to convince institutional investors that its business can thrive without Microsoft.

Yahoo executives also told investors that regulatory risks would undercut the value of any deal with Microsoft.

One investor said his firm met Yahoo management last week, and executives said they were “far along” in discussions with these companies.

Yahoo presented these alliances as a way to “monetise the different layers of their income statement,” said the investor, who declined to be identified as the meeting was confidential.

Another investor, whose firm holds about 1 per cent of Yahoo’s shares, said Yahoo management recently spoke to them about the “value creating” potential of a tie-up with Google, centered on Yahoo outsourcing its search functions to Google.